New 529 rules -- One state plan's response

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Rupert
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New 529 rules -- One state plan's response

Post by Rupert » Sat Jan 13, 2018 10:30 am

So there's been a lot of questions here lately about the new 529 plan rules permitting distributions for K-12 "expenses for tuition." I was reviewing my kids' plans this morning and saw this statement on the plan website:

"Section 529 of the Internal Revenue Code of 1986, as amended (the “Code”), has expanded, for distributions made after December 31, 2017, the definition of qualified higher education expenses to include expenses for tuition in connection with the enrollment or attendance at an elementary or secondary public, private or religious school. However, the [state] statute establishing the Plan does not permit such distributions and will need to be modified to permit such distributions. In the event that the [state] statute in the future authorizes such distributions, the Plan and this Program Disclosure Statement will be further supplemented. In the event the [state] statute is modified to permit such distributions, such distributions from all qualified tuition programs with respect to a beneficiary during any taxable year shall, in the aggregate, not include more than $10,000 in expenses for such tuition incurred during the taxable year in connection with the enrollment or attendance of the beneficiary at an elementary or secondary public, private or religious school. You should always consult with your tax advisor regarding your individual situation."

It's noteworthy, I think, that they seem to be interpreting the law to only permit distributions for K-12 tuition. [Edited to note that this entire paragraph is about the new K-12 provisions. Higher education rules are unaffected.]
Last edited by Rupert on Sat Jan 13, 2018 10:49 am, edited 1 time in total.

Five
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Re: New 529 rules -- One state plan's response

Post by Five » Sat Jan 13, 2018 10:37 am

Interesting reading. I would call your nearby university/college and discuss this concept with their student financial/accounting department to see what their take is.....how is this new rule/interpretation is perceived by the school.

RudyS
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Re: New 529 rules -- One state plan's response

Post by RudyS » Sat Jan 13, 2018 10:43 am

IANAL, but this reads, and I have read elsewhere, that the limitation to payment for TUITION applies only to the new elementary or secondary provision. Not aware that the policy for post-secondary expenses has changed.

Rupert
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Re: New 529 rules -- One state plan's response

Post by Rupert » Sat Jan 13, 2018 10:47 am

RudyS wrote:
Sat Jan 13, 2018 10:43 am
IANAL, but this reads, and I have read elsewhere, that the limitation to payment for TUITION applies only to the new elementary or secondary provision. Not aware that the policy for post-secondary expenses has changed.
Yes, the entire paragraph is about the new K-12 provisions. Distributions for higher education are not affected. I'll modify my initial post to make that clear.
Last edited by Rupert on Sat Jan 13, 2018 10:48 am, edited 1 time in total.

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HueyLD
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Re: New 529 rules -- One state plan's response

Post by HueyLD » Sat Jan 13, 2018 10:48 am

Rudy,

The TCJA did not change the rules for qualified post secondary education.

ccieemeritus
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Re: New 529 rules -- One state plan's response

Post by ccieemeritus » Sat Jan 13, 2018 11:31 am

What state is this?

GreenGrowTheDollars
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Re: New 529 rules -- One state plan's response

Post by GreenGrowTheDollars » Sat Jan 13, 2018 1:29 pm

Colorado's plan sent a warning out a couple days ago advising that there might be state tax consequences (recapture) if funds were used for K-12, and suggesting that folks be careful for the moment.

staythecourse
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Re: New 529 rules -- One state plan's response

Post by staythecourse » Sat Jan 13, 2018 3:07 pm

Thanks for the update.

Just curious, if it is a federal law (the new IRS tax changes) is is even allowed for the state to prevent or anyway limit what the funds can be used for?

Good luck.

p.s. Not a laywer, but find it interesting when these state vs. federal issues pop up.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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runner9
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Re: New 529 rules -- One state plan's response

Post by runner9 » Sat Jan 13, 2018 3:11 pm

ccieemeritus wrote:
Sat Jan 13, 2018 11:31 am
What state is this?
Based on Google search I'd bet Alabama.

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camillus
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Re: New 529 rules -- One state plan's response

Post by camillus » Sat Jan 13, 2018 3:12 pm

I believe this only applies to states where there is a state income tax deduction for 529 contributions, thus governed by state laws.

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HueyLD
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Re: New 529 rules -- One state plan's response

Post by HueyLD » Sat Jan 13, 2018 3:13 pm

States are under no obligation to follow the federal tax law and it has been this way for decades.

I have always lived in a state with various adjustments between the federal and state returns due to differences in tax laws.

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Smorgasbord
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Re: New 529 rules -- One state plan's response

Post by Smorgasbord » Sat Jan 13, 2018 3:44 pm

Very interesting...made me check my state (Indiana) code regarding the 529 plan.

Indiana Code 6 - 3 - 3 - 12:
(g) As used in this section, “qualified higher education expenses” has the meaning set forth in IC 21-9-2-19.5 .
(h) As used in this section, “qualified withdrawal” means a withdrawal or distribution from a college choice 529 education savings plan that is made:
(1) to pay for qualified higher education expenses, excluding any withdrawals or distributions used to pay for qualified higher education expenses if the withdrawals or distributions are made from an account of a college choice 529 education savings plan that is terminated within twelve (12) months after the account is opened;
The referenced Indiana Code 21-9-2-19.5
“Qualified higher education expenses” has the meaning set forth in Section 529 of the Internal Revenue Code
Had IC 21-9-2-19.5 copied and pasted the old definition rather than linking to it, things would have been quite different.

Spirit Rider
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Re: New 529 rules -- One state plan's response

Post by Spirit Rider » Sat Jan 13, 2018 4:31 pm

Smorgasbord wrote:
Sat Jan 13, 2018 3:44 pm
Had IC 21-9-2-19.5 copied and pasted the old definition rather than linking to it, things would have been quite different.
Exactly. This is going to come down to how states worded their statutes and how many are going to revise them to include, exclude or let the chips fall as they may.

Many internet site kept saying (and most of them still do) that my state taxed HSA accounts when it was and still is not true. They based that on identifying states that specifically opted in. Well my state never had to or even did opt in. They had a global provision that all federally tax deferred accounts were exempt.

So don't necessarily trust any generic statements about this new provision. It will be state specific and maybe changing.

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